Federal Reserve Expected To Stand Pat
The Federal Reserve is meeting today to discuss monetary policy but no change to interest rates are expected. While the Fed’s stance on the economy has shifted somewhat in recent months, placing more of a focus on inflation, the weakening financial and housing markets will most likely keep their hands tied.
Americans in the lower income classes are bearing the brunt of the current economic slowdown with consumer confidence falling to their lowest level since the 1992.
Consumers, whose spending accounts for more than two thirds of gross domestic product, are being hurt by the housing slump, rising unemployment and higher food and fuel bills.
Recent economic data “suggests we are on the brink” of a recession in the U.S., former Federal Reserve Chairman Alan Greenspan said today via satellite to a conference in Johannesburg. The next year will be “a very sluggish period,” with a “highly volatile oil market,” he said.
The lone bright spot in the economy has been the export sector which has benefited greatly from the weak dollar and while the country still runs a trade deficit, it has shrunk to it’s lowest level in years. However, high fuel costs are starting to put a damper on global trade as a whole with shipping costs rising to compensate.
The relative decline in competition from imports has also allowed domestic manufacturers to raise prices which has helped contribute to higher inflation expectations. Although consumer spending continues to rise while the economy slows, that can be solely attributed to higher prices.
The Fed is currently in a “no-win” situation, currently both inflation and recession are significant threats to the economy and until one of them tips the balance, the Fed will most likely keep rates stable.
